We can judge whether Rexnord Corporation (NYSE:RXN) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Is Rexnord Corporation (NYSE:RXN) undervalued? The best stock pickers are in a pessimistic mood. The number of bullish hedge fund positions dropped by 1 in recent months. Our calculations also showed that RXN isn’t among the 30 most popular stocks among hedge funds (view the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a peek at the new hedge fund action surrounding Rexnord Corporation (NYSE:RXN).
How have hedgies been trading Rexnord Corporation (NYSE:RXN)?
Heading into the third quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards RXN over the last 16 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Impax Asset Management held the most valuable stake in Rexnord Corporation (NYSE:RXN), which was worth $129.6 million at the end of the second quarter. On the second spot was Marshall Wace LLP which amassed $16 million worth of shares. Moreover, Millennium Management, Interval Partners, and Gotham Asset Management were also bullish on Rexnord Corporation (NYSE:RXN), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Rexnord Corporation (NYSE:RXN) has experienced falling interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of hedgies who sold off their full holdings by the end of the second quarter. Interestingly, Nick Niell’s Arrowgrass Capital Partners cut the biggest position of the 750 funds tracked by Insider Monkey, comprising close to $3.9 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund dropped about $2.9 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 1 funds by the end of the second quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Rexnord Corporation (NYSE:RXN) but similarly valued. These stocks are Allegheny Technologies Incorporated (NYSE:ATI), Fox Factory Holding Corp (NASDAQ:FOXF), The Descartes Systems Group Inc (NASDAQ:DSGX), and Black Stone Minerals LP (NYSE:BSM). This group of stocks’ market valuations are closest to RXN’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $125 million. That figure was $210 million in RXN’s case. Allegheny Technologies Incorporated (NYSE:ATI) is the most popular stock in this table. On the other hand Black Stone Minerals LP (NYSE:BSM) is the least popular one with only 7 bullish hedge fund positions. Rexnord Corporation (NYSE:RXN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately RXN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on RXN were disappointed as the stock returned -10.5% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.